The U.S. Dollar Is Toast – Sell! Here’s Why

The U.S. dollar is in a free fall!…The fundamentals have been screaming a “Sell!” for the past several quarters…

An excerpt from an article by QuandaryFXedited ([ ]) and abridged (…) by the editorial team at munKNEE.com – Your Key to Making Money! – to provide a fast and easy read.

From its peak in 2015, the dollar has fallen by about 5%. This doesn’t sound like a lot at first glance, but when you put it into perspective, the numbers speak a little clearer. This is the largest decline from a 52-week peak since the tail end of the financial crisis.

During the financial crisis, there was a surge of demand for the dollar as global investors piled into one of the safest assets – United States Treasuries.

An often overlooked fact of Treasuries is this – they’re priced in dollars.

When investors need Treasuries, dollars must be held to purchase them.

As the financial crisis thickened, global investors parked capital in Treasuries, causing the dollar to skyrocket.

After the dollar peaked in 2009, there was a sell-off in the currency as the global situation slowly began to resolve. However, it wasn’t long until the Fed unveiled a continuous stream of quantitative easing programs.

These programs can essentially be boiled down to the formula of printing cash to buy an interest rate security to decrease yields in order to encourage borrowing.

Through the life cycle of these programs, the United States economy recovered.

As it recovered, global investors once again acquired dollars to participate in the rebounding economy.

This propelled the currency to new and accelerating heights as program after program entered the scene.

When quantitative easing finally ended and the Federal Reserve began to discuss discount rate increases, the dollar began to slide.

Essentially, investors realized that the wind beneath the wings of the U.S. economy would slow, so capital would need to be shifted to earn a higher return elsewhere.

The Federal Reserve increased interest rates for the first time last December, further signaling that the cheap money rally is over.

…That brings us to today. As we have previously discussed, there really is no way around it. When the Federal Reserve increases rates, the dollar falls – dramatically. You see, the funds which have been invested in the United States economy realize the truth of business cycles – they end. We have been in a rebound for nearly 8 years.

As rates increase, businesses will be forced to pursue fewer projects and investments due to the simple math of the difference between return on investment and borrowing cost.

With more businesses pursuing fewer projects, the output of the economy will decrease.

As the economic output falters, we will see increasing unemployment. Oh wait, that’s started to happen! The recent unemployment report is just a messenger for what’s on the way.

Just like most everything in the economy, unemployment moves in cycles – and we’re at the apex of the employment cycle. Do you see what happened historically when unemployment reached the ballpark of where we’re at today? It turned right around and went back up. In other words, we’re at the top of a business cycle, and economic activity is probably going to fall.

As I’ve argued several times, the dollar is simply toast….The signals continue to shout a clear “Sell!”…

“Follow the munKNEE” on Facebook, on Twitter or via ourFREE bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner)

One comment

In reference to your “As I’ve argued several times, the dollar is simply toast….The signals continue to shout a clear “Sell!”. Where do you go, where did you buy? Did you buy Europe? Africa? The Mid East.? China? South America? Mexico? Canada? the U.K? Australia? New Zealand? Japan?
Not to put too fine a point on this, BUT, there is a reason for US$ strength. It is better then any of the alternatives given above and a lot more. As an analyst you need to revisit you ‘thinking’ or ‘political ‘prejudices and not assume there is no intelligent life ‘elsewhere’.

DISCLOSURE: It is our intent that all posts on this site be in accordance with the requirements, restrictions and terms of the Copyright Law of the United States and all other copyright treaties to which the United States is party and more specifically of the Digital Millennium Copyright Act - Blogger . As such, all posts on this website have been screened at Library of Congress Catalog as to their eligibility for posting. Should any post be deemed to be inadvertently in contravention of these Acts' terms please advise with substantiation of such apparent contravention (i.e. registration number) and the article in question will be immediately deleted from the site. Also, visit U.S. Code 17-107 Limitations on Exclusive Rights - Fair Use

FAIR USE NOTICE: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of financial, economic and investment issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

COPYRIGHT & DISCLAIMER: Lorimer Wilson is not a registered advisor and does not give investment advice per se. The articles to be found on the site are expressions of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Please consult with a qualified investment advisor who is licensed by appropriate regulatory agencies in your legal jurisdiction before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. The information on this site was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that while Wilson may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website they do not intend to disclose the extent of any current holdings or future transactions with respect to any particular security and, as such, you should consider this before investing in any security based upon statements and information contained in any report, post, comment or recommendation you read on the site.